Comments on: WARNING: Converting an Index Fund to an ETF May Increase Your Wealth

By: latecomment

latecomment — Wed, 05 May 2010 13:23:17 +0000

So, I guess this is a late comment, but when you say “ETFs generally do not generate yearly capital gains that are taxable” please remember that Vanguard structured its ETFs differently than the rest of the world. For the same reason that converting is not a taxable event (for Vanguard, they are different share classes of the same fund), Vanguard ETFs are hit with the same capital gains distributions that the traditional share classes have. This is generally not true for other institutions who structured their ETFs separately from their mutual funds.

Also, while the expense ratios are usually lower, the bid-ask spreads (which are much harder for investors to see and understand) can out-weigh the expense ratios. Research has found that during market turbulence (often when investors buy and sell a lot) the deviations can be quite large 5-10%.

By: DR

DR — Sat, 15 Aug 2009 11:48:19 +0000

Matt, let me first say that I’m not tax specialist. I know just enough to be dangerous, so be sure to consult a tax specialist. But I believe the basis would simply carry over from the mutual fund. You would add any cost associated with the conversion to the basis as well, I should think.

By: Matt

Matt — Sat, 15 Aug 2009 02:38:55 +0000

How do you account for your cost basis in the ETF following conversion?

By: Jason

Jason — Mon, 24 Sep 2007 04:19:47 +0000

Fee's are the worst. I wish more people realized what they were getting into when they swallow their "advisor's" pitch hook link and sinker. I wrote an article about ETF vs Mutual Funds that provides a little more background at My Blog

By: Pinyo

Pinyo — Thu, 13 Sep 2007 18:34:06 +0000

That’s really cool. I switched money in one of my mutual funds to Vanguard ETFs to save on expenses too. Unfortunately, it wasn’t a fund so I had to sell then buy.